Education of a Speculator

Thursday, July 3, 2014

NQ is DQ'd Closed the Aug 12c NQ

So this has been a wild ride. I bought the Aug 12calls on the gap up on the news that the NQ's independent audit came back clean and showed no fraud. NQ sold off from that point when the expected 20F has yet to materailze. I was still somewhat still an optimist up to yesterday when NQ rallied on a rumor that it would be released shortly.

Today, I woke up to the following headline:

"NQ stated its independent auditor has "communicated [...] that it would need to perform additional procedures and expand the scope of its 2013 audit work." The request, NQ says, came sometime after the June 4, 2014, release of its summary findings of the independent investigation. In that summary, NQ insisted no evidence of such fraud was found.

Curiously, NQ Mobile says it's only "considering" the auditor's request, and will "provide a further update when available." What's more, the audit update was buried in a single paragraph at the bottom of NQ's lengthy press release, which first justified a shake-up in NQ's board of directors and audit committee. Most notably, NQ's current chair of the audit committee informed the board she would be stepping down "due to personal reasons not related to her role at the company effective on July 6, 2014."

Yea. (sarcasm)

Upon reading this news, I knew my hypothesis for the trade was wrong--That the 20F would be reported shortly and would be relatively clean driving the NQ up to 30 giving my calls a huge profit, which would put a porsche in my driveway. (we all dream).

After getting the slap in the face I knew I needed to act. Problem being, the option markets do not open until 9:32. So I had to wait until the open to bail and bail I did. I put a limit order in for .15 which got filled immediately--high of the day (yea!).

A tip I've picked up over the years and as my time at the CBOE is a big move down will inflate the price of calls before the volatility is crushed. Using that to my advantage let me save a few bucks and get the top price of the day on my calls.

The market loved the news as much as I did ultimately closing down 32.25%.

Summary: This trade was never about a price proving or disproving my theory but was to be news driven. I made a bet and it was wrong. I limited my risk by buying options as I knew this would be a wild ride. When buying options on a trade like this I take size for the trade with the assumption I will lose it all. I nearly did. Bot @ $1.85 Sold .15 This was less than a 2% portfolio loss, which is acceptable under my rules.
In retrospect this is a trade that I shouldn't have taken. There were so many red flags -- I doubt I would have taken this trade If I had not been on the huge win streak that I have had over the first two quarters. Ultimately, I gambled instead of speculated and the market called my bluff. Well played market, Well played indeed.

This blog is for me. I'm not giving investment advice. I don't care what you do. If you take a position because I do and you have not formed your own thesis you are an idiot and you deserve to lose your money.